Best Buy plans to shut 250 small mobile phone stores

FILE PHOTO: A Best Buy store is seen in Los Angeles, California, U.S., March 13, 2017. REUTERS/Lucy Nicholson/File Photo

By Nandita Bose

(Reuters) - Best Buy Co Inc <BBY.N>, the No. 1 U.S. consumer electronics retailer, on Wednesday said it will shut 250 small mobile phone stores in malls as it looks for ways to operate profitably and turn around its business amid intense competition.

The stores, which contributed just over 1 percent to the company's overall revenue and 1 percent to its overall square footage, will be shut effective May 31.

The mobile stores are each about 1,400 square feet while a typical Best Buy store occupies about 40,000 square feet.

The Minneapolis-based retailer said it will continue to sell mobile phones through its 1,000 U.S. big box stores and online.

Best Buy began opening these stores more than a decade ago, before Apple Inc's <AAPL.O> iPhone was launched and when margins in the business were high, Best Buy Chief Executive Hubert Joly told employees in a letter, a copy of which was seen by Reuters.

"Fast forward to 2018 and the mobile phone business has matured, margins have compressed and the cost of operations in our mobile standalone stores is higher than in our big box stores,' Joly said.

The company declined to disclose how many employees will be affected by the decision.

The letter said Best Buy will help employees look for other jobs within the company over three months. It will offer severance to those who leave after May 31 and help them with an external job search.

About six years ago, Best Buy struggled with plunging sales and shrinking profit as consumers browsed at brick-and-mortar stores but made purchases online, a practice called showrooming.

Since then the company has tried to turn itself around by closing underperforming stores, improving customer service and competing with Amazon.com Inc <AMZN.O> by matching the online retailer's low prices.

Those efforts have helped Best Buy grow comparable sales at stores open at least a year in six of the past eight quarters. The company reports fourth-quarter earnings on Thursday.

Joly said in the letter he felt confident about retaining customers and transitioning them to the company's larger stores and website, adding 85 percent of Best Buy's mobile stores are within three miles of one of its big box stores.